Agarwala v Agarwala

On 6 December 2012, His Honour Judge Moloney QC handed down a judgment in the Cambridge County Court in which he found that the appellant held No 79 High Street, Cherry Hinton, Cambridge ("the property") on trust for the respondent. The appellant appeals against the judge's order dated 14 December 2012 which gives effect to that judgment.

The background to the case is set out in some detail in the judgment. In summary, the appellant and the respondent are members of the same family, sister-in-law and brother-in-law respectively. For convenience, the judge referred to them in his judgment by their first names, Jaci and Sunil. I will do the same in this judgment.

The property is a house. It is common ground that Sunil identified the property as an investment and initially intended to purchase it in the name of a builder friend, Andy Prior, with a trust deed. This fell through and Sunil approached Jaci about the proposition, stating that it was a good deal but he did not have the credit rating to purchase it. The property was purchased in April 2007 on a mortgage as a commercial investment to be run as a B&B business. The purchase was made in Jaci's name. It was agreed that Sunil would operate and manage the B&B and arrange and supervise the necessary works. The legal title is in Jaci's name and the mortgage is in her name.

The trial of the action before the judge took place between 22 and 29 August 2012. While the proceedings were fiercely contested on both sides, there was agreement on one further matter: namely, that there was a clear express oral agreement, or at least an understanding, between the parties as to the terms on which the property was to be bought, held and used. However, as the judge said, Jaci and Sunil's accounts of what that agreement was were diametrically opposed. The judge summarised the two rival versions of the agreement as follows in paragraphs 3(b) and 3(c) of the judgment:

The judge began his consideration of the question "who holds the beneficial interest in the house?" with the legal title to the property. In paragraph 3(e) he said this:

When the parties fell out in July 2008, Jaci and her husband Sudhir took over the day-to-day running of the B&B from Sunil and changed the locks so as to exclude him. Sunil then forged Jaci's signature on a lease and a Deed of Trust in his favour, both backdated to the time of completion in April 2007, and showed them to the police in an attempt to re-enter the property. Sunil's deceit was soon detected. Although he was arrested, he was not prosecuted. The police treated the matter as a civil dispute.

It was against this background that the judge commented in paragraph 3(f) of the judgment:

The judge then dealt with that evidence in paragraphs 4 to 6 of the judgment under three headings: "4. Financial Contributions to Purchase and Improvement", "5. Sunil's Use of Trusts" and "6. Contemporary Emails between the Parties", before reaching his "Conclusions on Beneficial Ownership" in paragraph 7 of the judgment. In paragraph 4, the judge concluded that the evidence of financial contributions was not "of much assistance" in deciding which version of the oral agreement was more likely (see paragraph 4(d)). I will consider his reasons for reaching that conclusion below.

In paragraph 5, the judge concluded that there were three other transactions in which Sunil had been involved which "bore some resemblance" to his version of the agreement in the present case and which therefore went "some way to strengthening the likelihood that he and Jaci did make such an agreement" (see paragraph 5(a)). In paragraph 6, the judge said that contemporary email traffic was "probably the best evidence of what, if anything, was the deal between the parties" (see paragraph 6(a)). He said that no one email was conclusive. While the judge identified some emails "which may lend support to Jaci's case" (see paragraph 6(b)), he also identified other emails which were "apparently more supportive of Sunil's position" (see paragraph 6(c)).

Having analysed the evidence in that manner, the judge's conclusions in paragraph 7 on beneficial ownership were as follows:

In her skeleton argument and her oral submissions on behalf of the appellant, Ms Jones made a wide ranging attack on the judge's conclusions. Her principal criticisms of the judge's approach to the question "who holds the beneficial interest in the house?" were as follows. She submitted that the judge:

I will deal with these points in turn.

In my judgment, it is plain that the judge had the presumption well in mind. The question is not whether he expressly referred to the presumption as such but whether he applied it. Reading paragraph 3(e) of the judgment (see above) there can be no doubt that he did so. The judge took as his starting point the proposition that, since the legal title was in Jaci's name, it was for Sunil to establish his claim in accordance with the principles underlying Stack v Dowden. The judge was right to focus on the underlying principles, which commence with the presumption, because this was not a cohabiting couples or joint names case. The property was acquired as a business proposition in Jaci's sole name. Unsurprisingly, because this was a business proposition, it was common ground that there was an oral agreement or understanding between the parties as to the terms on which the property was to be bought, held and used. In these circumstances, if Sunil was able to establish, on the balance of probabilities, that the agreement was that he should be the sole beneficial owner, then provided he could also show that he had acted to his detriment in reliance on that agreement, he would be able to discharge the onus of showing that the beneficial ownership differed from the legal ownership. The weight to be given to the presumption will depend upon the facts of the particular case. In a conduct case, where no prior agreement is alleged, and where the parties' conduct is ambivalent, the presumption is likely to be decisive. But in a case such as the present, where it is common ground that there was an agreement as to how this business asset was to be bought, held and used, the presumption is only the starting point.

In support of her submission that the judge had wrongly reversed the burden of proof, Ms Jones drew attention to the order of proceedings before the judge in which the judge had directed that Jaci should give her evidence first, followed by Sunil's evidence. Ms Jones submitted that it was for Sunil to establish his case; it was not for Jaci as the legal owner to prove her case. This submission might have had some force if the judge had been asked to consider, in effect, a "no case to answer" submission on behalf of Jaci, but no such submission was made and both parties gave their evidence as to what the agreement or understanding was. In those circumstances, what matters is not the order in which the parties gave their evidence about the agreement but the approach adopted by the judge in his judgment to the burden of proof in the light of the presumption. There can be no doubt that the judge correctly placed the burden on Sunil. It was for him to "establish" his claim: see paragraph 3(e) of the judgment. He had to establish that claim on the balance of probability: see paragraph 7 of the judgment.

The judge referred to the fact that the mortgage had been taken out in Jaci's name and that the property was later remortgaged in her name in his "outline chronology" in paragraph 2 of the judgment: see paragraphs 2(a) and 2(b). In paragraph 4 of the judgment, the judge recognised that financial contributions to purchase and improvement were often a "vital source of evidence on the issue of beneficial ownership", and analysed the extent to which the various financial contributions were of assistance in this case. He dealt specifically with the mortgage in paragraph 4(b) as follows:

In support of her submission that the judge had failed to place sufficient weight on the fact that Jaci was the person who was liable under the mortgage, and who was liable to an even greater extent when the property was remortgaged, Ms Jones referred us to the judgment of Lord Neuberger MR (as he then was) in Laskar v Laskar[2008] EWCA Civ 347, in which the Master of the Rolls discussed "the effect of taking the mortgage in joint names" in paragraphs 27 to 31 of his judgment. Laskar was a resulting trust case. The trial judge had found that there had been no discussions between the parties as to the ownership of the beneficial content in the property (see paragraph 8 of the Master of the Rolls' judgment) so the extent of the appellant's beneficial ownership in the property depended on whether the mortgage on the property which was taken out in joint names should be treated as a joint contribution to the purchase price.

The position in the present case is very different. Since it was common ground that this was a business venture in which there was an agreement as to the terms on which the property was to be bought, held and used, the fact that the mortgage was in Jaci's name and that she paid the instalments was of little help in deciding the issue of beneficial ownership if Jaci was, in effect, a conduit for the payment of the instalments out of the profits of the business venture.

There is no force in these criticisms of the judgment. This was a case in which both parties were contending that there was a common intention. I would readily accept the proposition that if the parties' recollections differ as to what their oral agreement was, that may well lead to the conclusion that there was no common understanding: the parties were simply at cross purposes as to what had been agreed. However, it was no part of Jaci's case before the judge that there was no common understanding because she and Sunil were at cross purposes. Given the nature of the two versions of the common understanding, there was no room for a misunderstanding between Jaci and Sunil and none was suggested. Either Sunil was, if only in this particular respect, telling the truth about the agreement, or, as alleged by Jaci, he was lying.

Ms Jones submitted that the judge had failed to have regard or give due weight to the evidence which supported Jaci's account. In her oral submissions she placed particular reliance on four pieces of documentary evidence which she submitted supported Jaci's case:

Dealing firstly with the two letters, Ms Jones relies on the letters for the proposition that in the letter from Sunil's solicitors to him, receipt of Mr Prior's cheque is acknowledged and the letter refers to Sunil's "requirements for the preparation of a Trust Deed and an agreement with Mr Prior," whereas in the second letter from Sunil to his solicitors, Sunil simply says that he is acting "for my sister-in-law".

It seems to me that the contrast between the phraseology in the two letters is very far from being conclusive, but in any event, while it is true that the judge did not expressly refer to these two letters, it is clear that he had the inference which Ms Jones seeks to draw from them well in mind. When dealing in paragraph 5 of the judgment with Sunil's use of trusts on other occasions, the judge referred to Sunil's initial proposal that Andy Prior should be his front man in the purchase of the property (see paragraph 5(b)). In paragraph 5(e) the judge said this:

The email dated 21 June 2007 referred to in paragraph 5(e) is one of the two emails to which Ms Jones submitted the judge should have given greater weight. The judge also referred to that email and to the email dated 20 April 2007 in paragraph 6(b) of his judgment as two of the emails which lent support to Jaci's case. While the words "remember that do you now own [the property]" do appear in the email, they are in the context of Sunil's seeking funds and suggesting that the equity of the house might persuade Lloyds to loan some money (for the purpose of relieving his shortage of funds). As the judge pointed out in paragraph 5(e) and in paragraph 6(c) of the judgment, the statement "yes you are the owner" in the email on 21 June 2007 is immediately followed by the words "I will now start to prepare the tenancy agreement to cover all outgoings and loans so you have no profit on the rent received and the deed of trust." The judge, in my opinion, was entitled to conclude that the contemporary emails considered as a whole corroborated Sunil's account of the agreement.

Ms Jones also placed some reliance on the fact that the property was not insured, was not up to fire standards and apparently was operating as a B&B without planning permission in breach of planning control. She submitted that this indicated that Sunil did not regard the property as his own property. In my judgment, this submission goes nowhere because it is surprising, if Jaci's account of the agreement is to be believed and she had both the legal and the beneficial interest in the property, that she made no attempt to ensure that these insurance and regulatory requirements were complied with. If she was an "owner", then she too was remarkably casual about the incidents of property ownership.

In my view, this criticism of the judgment adds nothing of substance to Ms Jones' earlier submission that the judge failed to give sufficient weight to the presumption and/or reversed the burden of proof. At the risk of repetition, in a case in which it was common ground that a property was being purchased as a commercial venture and where there was no dispute that the parties had entered into an agreement as to the terms on which it was to be bought, held and used, the judge correctly focused on ascertaining what, on the balance of probabilities, were the terms of that agreement.

Ms Jones emphasised that Sunil had relied upon the forged trust deed, not merely in his attempt to re-enter the property, but also in his pleadings in these proceedings. Indeed, he had not conceded that the trust deed had been forged by him until a very late stage prior to the trial. Ms Jones asked rhetorically, how could the judge have accepted Sunil's account of the agreement in these circumstances? She submitted that the judge must have placed some improper weight upon the forged trust deed as setting out the terms of the agreement.

In my judgment, it is plain that the judge (a) placed no weight on the forged trust deed and (b) gave proper weight to the fact that it had been forged, when assessing the credibility of Sunil's account: see paragraph 3(f) of the judgment and the first sentence of paragraph 7 of the judgment (above).

One of the threads running through Ms Jones' submissions was the contention that Sunil's case as deployed before the judge departed from his case as presented in the pleadings and the amended pleadings. The implicit criticism is that the judge's reasoning should have contained an analysis of these discrepancies. In some cases, that might well have been a justified criticism, but the circumstances in the present case were somewhat unusual. There is no doubt that Sunil did depart in a number of significant respects from his pleaded case. While Jaci's pleadings had been drafted by counsel (not Ms Jones), she was represented at the trial before His Honour Judge Moloney by her husband Sudhir, Sunil's brother. Her case, as presented at the trial, also differed from her pleaded case.

The trial was a fiercely contested family dispute, which took place over a number of days. Reading between the lines, I at least am left with the strong impression that the real dispute was between the two brothers Sunil and Sudhir, and that Jaci was caught in the crossfire. In these unhappy circumstances, the judge was right to focus on the two versions of the agreement as they emerged during the course of the proceedings. The judge's reasons for concluding that Sunil's account of the agreement was more likely are perfectly intelligible. They were (see paragraph 7 of the judgment) (i) it was corroborated by his conduct in other similar situations in which he had sought to persuade another person to hold a legal interest as a "front man" for him; (ii) it was corroborated by the contemporary emails considered as a whole; and (iii) it was inherently unlikely that such an unscrupulous and self-interested character would do a "good deed" (my words), that is to say finding, setting up and running a business for the sole benefit of his sister-in-law at no charge.

Ms Jones submitted that Sunil had obtained benefit from the arrangement, but, having heard the evidence, the judge was entitled to conclude that the supposed benefit relied upon by Jaci - that is to say Sunil's ability to send his surplus B&B guests to the property at no charge - was both inadequate and unconvincing. In her oral submissions, Ms Jones also argued that Sunil had received a benefit because he had been remunerated to the tune of some £19,500 from running the B&B business. The judge did not make a finding of fact to that effect, and neither the appellant's lengthy grounds of appeal (which were not drafted by Ms Jones) nor Ms Jones' skeleton argument, criticised the judge for failing to make such a finding. It follows that permission to appeal on this aspect of the case has not been granted and in these circumstances it would, in my view, not be appropriate to place any weight on this particular submission at this stage in these proceedings.

That leaves the one issue which has caused me some concern. The judge clearly recognised that the mere existence of a common agreement or understanding was not enough. Sunil had to establish that he had relied on the oral agreement to his detriment: see paragraph 3(f) above. The judge set out the detriment upon which Sunil was relying: "the work that he put in buying, converting and running the business, and the monies that he (but not she) put into it."

The judge dealt with the second limb of the claimed detriment in paragraph 4(d) of his judgment. Having concluded that Jaci made no net financial contribution to the purchase, improvement or running of the property before July 2008, he concluded that "It is possible that Sunil made a relatively small contribution, but the evidence is insufficient to be confident of the amount."

That left the work that Sunil had put in buying, converting and running the business. While the judge did not deal with detriment as a separate and distinct issue in his conclusions in paragraph 7 of the judgment, the judgment must be read as a whole and in a common sense way. While an explicit reference to detriment in paragraph 7 would have been desirable, having set out in paragraph 3(e) the detriment claimed by Sunil, which included the work he put into buying, converting and running the business, the judge was not required to repeat it word-for-word in paragraph 7. The judge's reference to Sunil managing the letting business must be a reference back to the detriment claimed by Sunil and an implicit acceptance of at least that part of Sunil's case on detriment. It is not without significance that, having referred to the applicable legal principles in paragraph 3(e), which of course include the need for there to be detriment in reliance upon a common understanding, the judge referred again to those principles in his concluding words in paragraph 7.

I am conscious that I have not covered each and every one of the points that were made by Ms Jones in her most able submissions, but I have sought to identify the principal grounds on which she challenged the judge's conclusion that Jaci holds the property on trust for Sunil. For the reasons set out above, I would reject those grounds of challenge and I would dismiss this appeal.

MR JUSTICE ARNOLD: I agree.

LADY JUSTICE HALLETT: I too agree.